Despite the photograph that accompanies this article, the headline isn’t an impertinent question as to your belly button configuration. It’s about your business orientation. Specifically, do you have an ‘inside–out’ focus, seeing the world through the lens of your business or an ‘outside–in’ focus, seeing the world through the eyes of your customer?
Let’s be honest, this isn’t a breakthrough question, it’s one that has been asked several times before. And answered. The general consensus can be summarised in the style of Animal Farm, ‘externally focused good, internally focused bad’, but, in common with many binary choices this is a false dichotomy. It is an oversimplification. It’s like asking a person if they prefer being asleep or awake. For most of us that’s a contextual question. It depends.
If it’s nighttime we like to sleep, when it’s daylight we like to be awake. I know there are some people who can’t wait to crawl into bed and stay there for as long as possible. Just as there are some who resent the biological necessity to sleep and set their alarms for 4:00AM, but they both represent the extremes. Regardless of personal preference, nobody is permanently asleep or constantly awake (although I have seen something close to the former on occasion)
For a business, being excessively internally focused is generally a bad thing, but so is being overly externally focused. An internally focused business runs the risk of losing sight of their customers, missing important trends and insights, and being out competed. An externally focused business may become uncompetitive through inefficient operations and a rising cost base. The logical position, as is often the case, should be somewhere in the middle. What is sometimes referred to as the ‘Goldilocks zone’. Unfortunately, it isn’t that simple.
First off, you need to stop assuming that your internal/external orientation is a fixed position. Think of a rev counter on a car dashboard that goes up or down depending on the input of the driver. Now imagine a similar device that sits on the desk of the CEO. When the business leader is predominantly externally focused the needle is way over to the right, when they are internally focused it sits to the left, and for the most part, it sits somewhere in the middle. The position of this dial sets the tone for the entire enterprise.
The Lego Group is a good example of shifting focus. Lego bricks are one of the most widespread and recognizable children’s toys in the world. Most of us played with them as children and despite our interest waning as we went through teenage years and early adulthood, we returned to the fold as we became parents and bought them for our own kids. Lego was one of the few, shared experiences that passed from generation to generation. (The experience of standing on a stray Lego brick with bare feet, in the dark, while checking on a sleeping child is one that many parents share).
Lego couldn’t have been more externally focused. The dial on the CEO’s desk was way over to the right. They focused almost entirely on product development and expanding its markets globally. They added Lego Technics, with moving parts and motors, to make things more interesting. They took the shared family experience to new levels with its theme parks. They stayed relevant by licensing deals with popular characters from blockbuster movies like Star Wars and Harry Potter. They recognized that children were becoming more tech savvy and introduced computer-controlled robotics with their Mindstorm range. They established that the growth of computer games for younger children was a threat so it launched its own video games division. Then they nearly went bankrupt.
The problem with Lego wasn’t its relentless external focus on expanding and improving its offer. It was the lack of attention paid to more internal matters. They opened multiple factories around the world to be close to customers but many of them lacked the scale to be efficient. Because of its wide manufacturing base it needed multiple regional distribution points. Its inventory ballooned to over twelve thousand individual parts in over one hundred colours. It had over ten thousand different suppliers. It was haemorrhaging cash. Something had to change.
New CEO Jorgen Vig Knudstorp took over the helm. The needle on his dial went way over to the left. He had no choice but to be internally focused. Manufacturing was consolidated into a few mega factories in lower cost countries. Distribution was centralised and outsourced to a specialist provider. Painful redundancies were made in the company town of Billund, Denmark. The theme parks and the computer games division were sold. The product range shrank by 50% to six thousand individual parts.
These actions created a platform for sustainable growth and a return to profitability. Before long the needle was back in the middle, where it probably should have been all along.
Thanks to the imaginary dial that sits on the CEO’s desk we can visualize how a businesses internal/external focus varies based on the current strategic emphasis of the business leader, that is, in turn, typically driven by events. While this is progress, it is still too much of a blunt instrument. We have to go a little deeper.
Regardless of the overall business focus, which is measured in terms of the resource allocated and the attention given by the CEO and their team, individual departments each have a natural orientation. Some departments are primarily internally focused and others are, by definition, externally focused.
Sales, marketing, product development and so on should be predominantly externally focused; they ought to see the world through the eyes of the customers. Operations, HR, finance, etc. are often internally focused. The consequence of the CEO shifting their focus to one extreme or the other is to put certain departments into the spotlight while others lurk in the shadows. Which doesn’t work in the long term.
In the Lego example a strategic shift to operations and logistics would not have worked if sales, marketing and product development were not also doing their thing and being part of the solution. A business can’t succeed at the extremes of internal or external focus in the long term. Like our sleeping analogy earlier, you need both to some extent.
Most businesses know this intuitively and the role of the CEO is usually to keep the focus-ometer on their desk in the performance zone, somewhere in the middle. But the responsibility for this doesn’t exist only in the corner office. Department heads and team members need to be accountable for balancing the conflict between internal and external orientation.
For example, HR departments are principally concerned with issues relating to the workforce. Having motivated and engaged employees is seen as a key driver of business success. Consequently HR spends their time on making employees feel valued by focusing on employment conditions, salary levels, dispute resolution, hiring and promotion activities, training and development, appraisals, staff surveys and so on. Which are all fairly internally focused activities. But these activities are insufficient for creating a great corporate culture.
The evidence challenges the very notion that motivated and engaged employees drive business success. They are definitely correlated but the causality probably runs in the other direction. Employees are motivated and engaged because the business is successful. This means that HR should collaborate with marketing to develop a strong external mindset and marketing need to work with HR to align internal activities and communication to the marketing plan.
You could make a similar argument for product development and operations, finance and sales and so on. Departments will have different emphasis and the company will have a specific current focus, but ultimately its about balance and cooperation. Are the right people focused on the right things at the right time? More importantly do they understand the implications of their decisions on other departments?
Which is why, when I am designing and delivering marketing strategy workshops, I strongly recommend that the participants be made up with people from across the business spectrum. Some from internally oriented functions and others with an external customer focus. The results from collaboration are always better than simply teaching marketing skills to the marketing team.
So the answer to the question “is you business primarily internally focused or externally focused?” should be “it depends”, or better still “both”. Context is everything.